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1 – 10 of 114Muhammad Ilyas, Rehman Uddin Mian and Affan Mian
Using a comprehensive sample from developed and emerging economies, this study aims to examine whether foreign institutional investors (FIIs) enhance the value of excess cash by…
Abstract
Purpose
Using a comprehensive sample from developed and emerging economies, this study aims to examine whether foreign institutional investors (FIIs) enhance the value of excess cash by constraining the potential self-appropriating managerial propensity related to its inefficient utilization.
Design/methodology/approach
This study uses a large panel data set of firms from 32 non-US countries from 2007 to 2018. Using data from COMPUSTAT Global and S&P Capital IQ, this study uses ordinary least squares regression with year- and firm-fixed effects for the baseline analysis. In addition, two-stage least squares with instrumental variable regression and propensity score matching approaches were used to address the potential endogeneity.
Findings
This study shows that FIIs significantly increase the value of excess cash holdings. The authors also found that the positive impact of FIIs is more significant when investors come from common-law countries with better governance and investor protection. Furthermore, in countries and firms with weaker governance controls, the relationship between FIIs and the value of excess cash is stronger, consistent with the institutional monitoring hypothesis. Collectively, the findings imply that FIIs are advantageous to investees because they effectively promote the efficient deployment of corporate resources.
Practical implications
Collectively, the findings of this study imply that FIIs are advantageous to investees because they effectively promote the efficient deployment of corporate resources.
Originality/value
This study offers new evidence on how FIIs impact the value of excess cash in an international setting. In addition, it highlights the significance of the legal origin of institutional investors’ home country and the governance quality of host countries and investee firms in influencing the effect of foreign institutional monitoring on the value of excess cash.
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There is no research on understanding the difference in the nature of volatility and what it entails for the underlying relationship between foreign institutional investors (FII…
Abstract
Purpose
There is no research on understanding the difference in the nature of volatility and what it entails for the underlying relationship between foreign institutional investors (FII) flows and stock market movements. The purpose of this paper is to explore how permanent and transitory shocks dominate the common movement between FII flows and the stock market returns. As emerging markets are a major destination of international portfolio investments, the author uses India as a perfect case study to this end.
Design/methodology/approach
The paper uses the permanent-transitory as well as a trend-cycle decomposition approach to gain further insights into the common movement between foreign institutional investors (FII) flows and the stock market.
Findings
When the author identifies innovations based on their degree of persistence, transitory shocks dominate stock returns, whereas permanent shocks explain movements in foreign institutional investors (FII) flows. Also, stock returns have a larger cyclical component compared to cycles in foreign flows. The authors find the sharp downward (upward) movement in the stock market (FII flows) cycle in the initial period of the COIVD-19 pandemic was quickly reversed and currently, the stock market (FII flows) is historically above (below) the long-term trend, hinting at a correction in months ahead. The authors find strikingly similar stock market cycles during the global financial crisis and COVID-19 period.
Research limitations/implications
Evidence suggests the presence of long stock market cycles – substantial and persistent deviations of actual price from its fundamental (trend) value determined by the shared relationship with foreign flows. This refutes the efficient market hypothesis and makes a case favoring diversification gains from investing in India. Further, transitory shocks dominate the forecast error of stock market movements. Thus, the Indian market provides profit opportunities to foreign investors who use a momentum-based strategy. The author also finds support for the positive feedback trading strategy used by foreign investors.
Practical implications
There is a need for policymakers to account for the foreign undercurrents while formulating economic policies, given the findings that it is the permanent shocks that mostly explain movements in foreign institutional flows. Further, the author finds only stock markets error-correct in response to any short-term shocks to the shared long-term relationship, highlighting the disruptive (though transitory) role of FII flows.
Originality/value
Unlike existing studies, the author models the relationship between stock market returns and foreign institutional investors (FII) flows by distinguishing between the permanent and transitory movements in these two variables. Ignoring this distinction, as done in existing literature, can affect the soundness of the estimated parameter that captures the nexus between these two variables. In addition, while it may be common to find that stock market returns and FII flows move together, the paper further contributes by decomposing each variable into a trend and a cycle using this shared relationship. The paper also contributes to understanding the impact of COVID-19 on this relationship.
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V. Veeravel, Pradiptarathi Panda and A. Balakrishnan
The present study aims to verify whether there is a positive (negative) role being played by the institutional investors on the loss-making companies' performance.
Abstract
Purpose
The present study aims to verify whether there is a positive (negative) role being played by the institutional investors on the loss-making companies' performance.
Design/methodology/approach
The authors employ panel data regression and two-step system generalised method of moments (SYS-GMM) to test the above objective.
Findings
The empirical results clearly show that no positive relation is found between institutional investors and loss-making companies' performance.
Research limitations/implications
The findings of the study might have significant implications for firms to improve the firms' operational performance [return on assets (ROA)]. Also, the firm's financial performance [return on equity (ROE)] could be improved by increasing profitability which will reflect in the share prices of the firms whereby the performance can build the investors' confidence over the firm. Market performance (Tobin's Q) could be increased by providing more attractive offers and discounts to customers to capture the business opportunities available in the market.
Practical implications
The overall findings might have for reaching implications in the manufacturing sector with regard to allowing (disallowing) institutional investors.
Social implications
The results of the study may help both companies and institutional investors.
Originality/value
This is the maiden attempt to study whether loss-making companies could be positively (negatively) impacted by the arrival of sophisticated institutional investors [foreign institutional investors (FIIs) and domestic institutional investors (DIIs)]. Further, this study is largely different from previous studies in terms of using new variables which are related to firm characteristics and valuation multiples. Further, seeing if the institutional investors tend to enhance the firm performance is curious.
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Saima Karim and Muhammad Ilyas
The aim of this study is to investigate the effect of foreign institutional investors (FII) on the contribution of cash and dividend to firm's value in the context of Japan.
Abstract
Purpose
The aim of this study is to investigate the effect of foreign institutional investors (FII) on the contribution of cash and dividend to firm's value in the context of Japan.
Design/methodology/approach
This study used a sample of 1,929 nonfinancial firms listed in Tokyo Stock Exchange in the period from 2002 to 2016. For data analysis, pooled OLS regression with firm and year fixed effect is applied. Further, the p-value of difference is used to test the null hypothesis of equal coefficients.
Findings
The findings depict that cash holdings contribute more to firm's value when ownership by FII is high. Contrarily, dividends contribute more to firm's value when ownership by FII is low. The results remain consistent after using excess cash holdings instead of cash holdings and after re-estimating the main regression model in the presence of top 30% and bottom 30% ownership level.
Research limitations/implications
This study is limited to Japanese nonfinancial sector. The results implied that firms where the probability of managerial agency cost and expropriation of cash is high, the presence of FII mitigates the agency cost and positively influences the contribution of cash to firm's value. Overall, this research highlighted the disciplinary and monitoring role of FII in Japan.
Originality/value
This study provides new insights on the monitoring and governance role of foreign institutions, showing that FII promote better cash management and utilization, which significantly affects the contribution of cash holdings to firm's value.
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Manogna R L, Aswini Kumar Mishra and Abhishek Kumar Sinha
The preference of firm internationalization is shaped by different groups of owners and the institutional environment in which the firm operates. Past studies have largely ignored…
Abstract
Purpose
The preference of firm internationalization is shaped by different groups of owners and the institutional environment in which the firm operates. Past studies have largely ignored the heterogeneity among the controlling groups in influencing the internationalization decision in emerging economy firms.
Design/methodology/approach
In this study, the authors draw understanding from behavioral risk perspective and institutional theory to inspect the risk perceptions and propensities of various ownership groups such as lending institutions, domestic mutual funds and foreign institutional investors (FIIs). Empirical analysis was conducted from a sample of 2695 unique BSE-listed nonfinancial Indian firms during 2005−2019 period using Tobit panel regression analysis.
Findings
The findings reveal that firms' international investments are impacted differently by ownership share of different types of institutional investors after controlling for firm-level resources and capabilities. While lending institutions and FIIs are supportive of foreign investments by firms, domestic mutual funds are not supportive of this strategic decision on foreign investment.
Research limitations/implications
Further, our results show that family ownership, measured in terms of family shareholding, negatively moderates the lending institutions toward internationalization and does not impact the FIIs and mutual fund investor's decision regarding the foreign investments.
Originality/value
To the best of the author's knowledge, the current paper is the first to address the risk perceptions of various ownership groups on firm's international outlook in an emerging economy context with the latest data. This practical perspective helps the organizations in managing the ownership holdings.
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Veena Madaan and Monica Shrivastava
This paper investigates herding behavior and its persistence among foreign institutional investors (FIIs) in the individual stocks of the energy sector of Indian stock exchange by…
Abstract
Purpose
This paper investigates herding behavior and its persistence among foreign institutional investors (FIIs) in the individual stocks of the energy sector of Indian stock exchange by focusing on post turmoil period. The study also examines the relation of herding with the individual return, market return, trading volume and conditional volatility of individual and market return.
Design/methodology/approach
The presence of herding is investigated by Lakonishok et al. (1992) model, value-based and count-based herd ratio measure among FIIs in individual stock of energy sector post turmoil period. Further, run test was employed to check the persistency in herding and multivariate distributed lag to investigate the relationship with the market determinant.
Findings
The result indicates the existence of herding in most of the companies and strong persistence in all the companies. The intensity of buy side herding is higher than sell side. Herding and individual return both are significant driving forces of FIIs herding, while trading volume and market volatility in few companies exhibit inverse relationship.
Research limitations/implications
This study is limited to investigation of energy sector stock.
Social implications
Stock market is significantly influenced by FIIs and their propensity to herd may generate instability in the stock market. Therefore, regulatory authority should continuously monitor the flow of fund by FIIs.
Originality/value
Herding in the individual stock of the energy sector was not previously performed.
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Brahmadev Panda and N.M. Leepsa
Previous empirical evidence scrutinizing the impact of the institutional ownership on the firm performance has produced inconclusive results and mostly concentrated in the…
Abstract
Purpose
Previous empirical evidence scrutinizing the impact of the institutional ownership on the firm performance has produced inconclusive results and mostly concentrated in the developed market. Hence, the purpose of this paper is to assess the impact of the ownership engagement by pressure-resistant, pressure-sensitive and foreign institutions on the corporate financial performance in a developing market like India post US financial crisis.
Design/methodology/approach
This study considers a panel data set of 361 Indian listed firms from National Stock Exchange (NSE) 500 index for a period of eight years from financial year (FY) 2008-2009 to FY 2015-2016. The panel data regression (pooled ordinary least square [OLS], fixed-effect [FE] and random-effect [RE]) and simultaneous equation modeling are used by considering the institutional ownership engagement as both exogenous and endogenous variable.
Findings
The test results show that institutional ownership engagement by the pressure-resistant and foreign institution have a robust and positive effect, while ownership engagement by the pressure sensitive institution has an adverse impact on the financial performance of the Indian listed firms.
Research limitations/implications
The findings will boost the monitoring activities of the institutional owners in the developing markets. The investment from pressure-resistant and foreign institutions needs to be augmented in Indian firms to improvise their governance functions and performance.
Originality/value
This research will enrich the governance literature of the developing economies as the studies on institutional ownership engagement are limited in the developing world. Further, this study adds value by capturing two emerging institutional ownership category such as the pressure-resistant and pressure-sensitive, which are still untouched in the Indian context. Next, the consideration of the institutional ownership as both exogenous and endogenous is also novel to the Indian literature.
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Jin Jiang, Xiangyun Lu, Yihan Wu and Hua Zhang
The purpose of this study is to investigate the effects of capital market liberalization on audit reporting and pricing. The authors use the announcement of the Shanghai-Hong Kong…
Abstract
Purpose
The purpose of this study is to investigate the effects of capital market liberalization on audit reporting and pricing. The authors use the announcement of the Shanghai-Hong Kong Stock Connect program in China as a shock to capital market liberalization.
Design/methodology/approach
The authors use the difference-in-differences method to study the difference in changes in the frequency of modified audit opinions and audit fees between the treatment group and the control group.
Findings
This study finds that capital market liberalization increases reputational and litigation risks for auditors and leads to more conservative audit reports. In addition, capital market liberalization stimulates the management of eligible firms to improve the information environment, helps to reduce information asymmetry and decreases audit fees. Specifically, the authors identify the channels of active foreign institutional investors as a new governance mechanism through which capital market liberalization impacts eligible firm and auditor decisions.
Research limitations/implications
This study complements the literature by showing that capital market liberalization may bring a new and strong governance mechanism for eligible firms and auditors.
Practical implications
This study may provide new references for active foreign institutional shareholders as a new and strong governance mechanism in weak institutional regimes such as China, auditors’ optimization decisions when litigation risks increase and management’s improvements in the information environment under the monitoring of foreign institutional shareholders.
Originality/value
Overall, this study contributes to the literature by showing that capital market liberalization can bring a new governance mechanism for the management of eligible firms and auditors in a weak institutional environment. Foreign institutional shareholders may be superior to the domestic market forces and other corporate governance in the role of monitoring the management of eligible firms and auditors.
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Manogna R.L. and Aswini Kumar Mishra
The preference of firm corporate social responsibility (CSR) spending is shaped by different groups of owners and the institutional environment in which the firm operates. This…
Abstract
Purpose
The preference of firm corporate social responsibility (CSR) spending is shaped by different groups of owners and the institutional environment in which the firm operates. This paper aims to study the heterogeneity among the controlling groups and firms’ internationalization in influencing the CSR decision in emerging economy firms.
Design Methodology Approach
This paper draws understanding from institutional theory to inspect the propensities of various ownership groups such as lending institutions (LI), domestic mutual funds (MF) and foreign institutional investors (FIIs). The empirical analysis was conducted from a sample of 1,594 unique Bombay stock exchange (BSE)-listed non-financial Indian firms during the 2014–2019 period using Tobit panel regression analysis.
Findings
The findings reveal that firms’ CSR activities are impacted differently by ownership share of different types of institutional investors after controlling for firm-level resources and capabilities. Lending institutions, FIIs and MF are supportive of CSR investments by firms along with international investments by the firm. Further, the results show that the CSR spend is positively influenced by the business group affiliation of the firm compared to the unaffiliated group of firms.
Practical Implications
The analysis has implications for both institutional investors and multinational firms. In the merging market context, managers and owners who target long term strategies such as CSR will benefit from increasing shareholdings of creditors (lending institutions). They can also take steps to improve their transparency and corporate governance structure so as to attract foreign institutional investments, thus, in turn, helping the internationalization process of the firm.
Originality Value
This paper considers the role of the diverseness of the ownership institutional investors along with the moderating effect of business group affiliation of the firm and international investments in impacting the CSR spend. This disparity has not been previously studied with the latest data in an emerging economy context.
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The purpose of this paper is to examine the investment preference of various types of institutional investors in Malaysia, and its influence on firm valuation, operating…
Abstract
Purpose
The purpose of this paper is to examine the investment preference of various types of institutional investors in Malaysia, and its influence on firm valuation, operating performance and capital expenditure.
Design/methodology/approach
This study employs ordinary least squares model to examine: investment preference according to different types of institutional investors; the association between various types of institutional investors and firm valuation; the association between various types of institutional investors and firm performance; and the association between various types of institutional investors and capital expenditure.
Findings
The result shows that different types of institutional investors exhibit different investment preference. From the domiciles perspective, local institutional investors (LII) are found to be associated with higher Tobin’s Q, ROA and net profit margin. When viewed from business relationship perspective, “pressure-resistant” institutional investors (PRII) are positively associated with Tobin’s Q, ROA and net profit margin. Both LII and PRII are also associated with higher capital expenditure.
Originality/value
This study reveals the investment preferences of various types of institutional investors in an emerging market economy. The results show that institutional monitoring is associated with higher firm valuation, higher firm performance and higher capital expenditure. However, the effect is largely driven by local and PRII, particularly government-controlled institutional funds. These evidence suggest that different firm outcomes between emerging and advanced economy can be explained by variation in institutional setting.
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